That certainly deserves some applause, although the bank retained its rhetoric of a "prudent monetary policy" in its third-quarter policy report.

Yet its concern about sliding prices and endeavours to correct tightness in the money supply had been clearly palpable.

The annual growth in M2, which covers cash in circulation and all deposits, quickened from 14.4 percent in July to 15.5 percent at the end of August, the fastest pace since exactly two years ago.

It then powered to 16.5 percent in September. Those figures easily beat the 13 percent target set at the beginning of the year.

Bank loans rose considerably in the first nine months while the central bank stepped up its increasingly important open market operations, most noticeably in July and August, and strongly scaled up buying of foreign currencies to put more cash into the financial system.

Partly as a result, China's foreign reserves soared by a significant 33.2 percent year on year to US$253.09 billion at the end of August.

It is entirely understandable why the central bank is clinging to its prudent monetary stance rather than adopting traditionally expansive anti-deflation approaches.

Although the broad measurement, M2, increased by a sluggish 14.7 percent over the past four years, it averaged a blistering 23.6 percent in the 20 years ending in 1999 when loans soared by 20.6 percent.

And the high debt/asset ratios of State-owned enterprises call into question whether increases in loans can solve real problems instead of piling on new bad assets.

But real-life pains seem to have won the upper hand over future concerns, and could well justify a further loosening in monetary policy.

Small- and medium-sized businesses are still suffering from an unabated funding shortage, while surpluses of bank deposits soared by 29 percent in the first nine months of the year.

The consumer price index dipped by 0.8 percent in the first three quarters of the year from a year earlier, and is predicted by the central bank to contract by 0.5 percent for the whole year.

And the uncertainties shadowing the world economy may also exert some influence on China's economic growth.

With continuous decline in prices firmly checking the imminent risk of inflation, the central bank can well move further in loosening its monetary policy.

(China Daily November 4, 2002)